
The welsh Assembly have done the same breding for dogs is legal and a business so schemes to help new businesses will give money to such people. The fact that this is morally wrong is another matter.
It might be worth pointing out that such businesses cause money to need to be spent dealing with stray and abandoned dogs, but as most rescues are charities I don't suppose they are bothered.
Their main interest is in ensuring they get their cut in taxes from the business.
These economic notes make it quite clear they realise what the different types of breeding are:
http://www.hmrc.gov.uk/bens/ben14.htm their interest in ensuring licensing is to ensure they get teh money.